VNRX: 2019 Could Be Busy Year of Data Releases, Assay Validations

By Brian Marckx, CFA

NYSE:VNRX

READ THE FULL VNRX RESEARCH REPORT

Q1 Results / Operational and Business Update:

On May 9th VolitionRx (NYSE:VNRX) reported financial results for their fiscal 2019 first quarter ending March 31st. Operating expenses, at $4.0M, were about 16% lower than our $4.6M estimate. They were also about $600k less than the prior year period, almost all of which reflects lower stock-based compensation in the most recent quarter. Operating expenses fell by approximately 7%, or $280k, on a sequential basis.

As we have noted in a prior updates, we estimate that VolitionRx’s average cost per sample (of all ongoing trials) is approximately $100 – a small fraction of the estimated ~$3.5k per sample cost of pivotal studies of other non-invasive CRC diagnostics. And while later stage, larger, prospective registration studies may cost significantly more than $100/sample, we continue to find it impressive how much progress has been made with relatively minimal spend to-date.

Cash used in operating activities was $3.7M ($3.5M ex-changes in working capital) in Q1’19, compared to $3.5M ($3.6M ex-changes in w/c) and $3.6M ($3.4M ex-changes in w/c) in the comparable prior year and quarter periods, respectively.

VNRX exited Q1 with $16.2M in cash and equivalents, up from $13.4M at the end of 2018. Cash balance was bolstered by $6.7M in warrant exercises during Q1. Subsequent to quarter-end another 1.7M in warrants were exercised, generating gross cash proceeds to VNRX of $5.0M.


View Exhibit I

Relative to the operational front, while VNRX just recently provided updates when reporting Q4’18 results in mid-March and again during their Capital Markets Day on April 9th, it appears that the company has made substantive operational progress even since then. In fact, management indicated as much on the Q1 call, noting that “we have great momentum and have made progress on many fronts even in just the past few weeks.”

A key highlight since the company’s most recent updates was the signing of a formal contract with National Taiwan University related to conducting the company’s first large-scale lung cancer study. As a reminder, following compelling initial proof-of-concept data from the first product-grade assay for lung cancer (see below), the company recently entered an MOU to extend their agreement with National Taiwan University to now include the first large-scale lung cancer study. The study will include 1,200 participants receiving low-dose CT scan, 1,000 of which have lung cancer. On May 1st VNRX announced that the MOU is now a formal contract.

And 2019 is shaping up to potentially be a busy year as it relates to the release of study data and assay validations. In addition to the compelling lung and colorectal cancer data announced earlier this year, we could see data from several ongoing and just-commenced commenced clinical studies. This potentially includes data from the three Fosun March (MOU with which was announced in late-March – more below) studies in CRC, lung and ovarian cancers, lung cancer data from the University of Taiwan study and initial data from the NuQ Vet program.

Data from proof-of-concept studies could also be forthcoming in a variety of programs. This includes CRC, lung, prostate and pancreatic cancers as well as possibly in endometriosis.

As it relates to lung cancer, up until very recently lung cancer had largely been considered a back-burner project (as far as we could tell) as the focus was mostly on colorectal cancer (and other cancers including prostate). But, with initial product grade data in lung (as well as CRC) and inbound interest in a lung cancer diagnostic (particularly as it relates to Asia), we think this may now represent one of the lead programs.

VNRX recently announced initial proof-of-concept data from an initial Nu.Q product grade assay. In 76 subjects, the assay detected lung cancer, including stage 1 cancer, with an area under the curve (AUC) of 85% as compared to healthy tissue. The same (single) Nu.Q assay, when used in a confirmatory cohort of 152 subjects detected lung cancer with an AUC of 79%.

As noted, earlier this month VNRX signed a formal contract with the National University of Taiwan to conduct the first large-scale lung cancer study. The study will include 1,200 participants receiving low-dose CT scan, 1,000 of which have lung cancer. The study could provide the first statistically-powered evidence of the potential utility of NuQ diagnostics as a screen for lung cancer or as an adjunct/triage test for low-dose CT. LDCT, currently the only recommended screening test for lung cancer, has drawbacks including its relatively high cost, patient exposure to radiation, overdiagnosis and a potential for meaningful rates of false-positives. As such, an adjunct or triage test that could improve accuracy of lung cancer screening and/or reduce the need for LDCT (without compromise to diagnosis) could have massive appeal, in our opinion. VNRX currently expects to announce preliminary data from the first 600 samples from this study in Q1 2020.

As a reminder, VolitionRx already has a relationship with National Taiwan University. VNRX previously finalized
agreements with NTU to conduct two large CRC studies; 5k-sample asymptomatic screening study and a 2k-sample symptomatic study.

As it relates to colorectal cancer, VNRX recently announced initial proof-of-concept data from an initial Nu.Q product grade assay. In 123 subjects a single Nu.Q assay detected CRC with an AUC of 72%. A two-assay panel, which included this initial product grade Nu.Q assay and an inflammatory biomarker test, had an AUC of 84%.

These are relatively tiny POC studies but the data is certainly encouraging. The goal will be to replicate these results with reproducible product grade assays in larger, fully powered studies.

VNRX is also making substantive progress towards validating their assays in Asian populations. In addition to the studies in Taiwan, VNRX recently made a significant stride towards conducting large studies in China. Asia is a market which we have always viewed as holding significant potential value for blood-based cancer diagnostics (given a cultural aversion to fecal handling and relatively high rates of lung cancer in certain areas of that continent).

In late-March VNRX announced that they signed a memorandum of understanding (MOU) with Shanghai Fosun Long March Medical Science Co, Ltd, a diagnostics division of Chinese pharmaceutical company, Shanghai Fosun Pharmaceutical (Group) Co., Ltd. Per the MOU (and following consummation of a formal agreement), Fosun is expected to be instrumental in the development and subsequent regulatory activities and commercialization of the company s colorectal cancer assays in China. Initially this will include conducting clinical studies in colorectal, lung and ovarian cancers in China. Per the press release, it will also include evaluating the development of NuQ assays on Fosun s existing chemiluminescence platform ( LUMIART-II Automated Chemiluminescence Immunoassay System ). The fully-automated, high throughput system is commercialized in China.

As it relates to a canine cancer diagnostic, on April 9th VolitionRx announced that they signed an MOU with Texas A&M University related to the formation of a new U.S. subsidiary, Vetco, with a focus on the veterinarian diagnostics market. It is envisioned that Texas A&M University would have an equity interest in Vetco. Management believes that a canine cancer test could be a relatively fast moving program given the less-stringent U.S. regulatory pathway for animal diagnostics (via USDA versus FDA’s PMA or 510k)k)). Canine cancer also represents a sizeable market. In fact, VNRX noted that 4.2M cases of canine cancer are diagnosed each year in the U.S., or nearly 2.5x as many human cancers. And, given a similar price point as a human Nu.Q test (~$100), the canine cancer opportunity could be in the many hundreds of millions of dollars.

VNRX is working with Texas A&M University’s College of Veterinary Medicine to conduct a study of Nu.Q Vet. Specifics in terms of the development and regulatory strategy are expected to be revealed in the near future. If all goes well, management believes they could have a Nu.Q test for the diagnosis of animal cancers (initially canines but potentially also other animals including horses) on the market by next year.

We will be eagerly awaiting updates on all of VNRX’s programs, but given the initial POC data, particularly so in their lung and colorectal cancer endeavors. Given the recent highly encouraging data in prostate cancer (and massive unmet need for a PSA replacement/adjunct), we had envisioned that a Nu.Q prostate cancer assay/panel could be a front-runner in terms of possible initial commercialization candidates. Whether that may still be in the cards, we don’t know, but will be something we hope to know more about as well.


View Exhibit II

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